One way not to do it

Implications: However well intentioned, often it seems that government measures to slow real estate market investment and price increases are having the opposite affect to that intended. There are some very basic reasons.

Analysis:

Chinese property prices continue to rise despite the regulators throwing all the taxes they can think of that are readily implementable and squeezing credit for developers and buyers. It says a lot about the investment options available to wealthy Chinese that property is still an attractive option. When interest rates on deposit are less than inflation you can understand why leaving money in the bank is not an attractive option.

What is most startling is that home ownership is already 80% if you include all the usage rights that are owned. These are halfway between a full title and a protected tenancy and are a hangover from the days of allocated housing. What this underscores is the still huge demand from upgraders, those that have a place they can call their own home already but still want somewhere better. Many of these people still live in hovels.

Demand from foreign investors is insignificant in the China market, they tend to be active only in certain parts of the country and in certain types of property. Hong Kong and Taiwanese investors are classed as ‘compatriots’ and are active in a wider range of locations but still there are limits on how many properties they can buy.

Impact of raising mortgage interest rates during 2007 will only be felt early in 2008 as mortgage rates are only revised once a year. Rather diminishes the point of small incremental rate increases. Expect a few more properties on the secondary market by March 2008 as the squeeze is on for those empty properties.

A final word on some of those statistics. They often exaggerate the problem and even some of these Year on Year figures are not always comparing apples with apples. For the rapid increase in Chinese GDP we would expect a rapid increase in property values and remember many of the ‘administrative measures’ are actually having a side effect of restraining supply which is not something that will slow price increases any time soon.